Question
1.In response to a Covid-19 induced drop in business, the Walt Disney Company furloughed 100,000 workers in April 2020. However, the company still plans to
1.In response to a Covid-19 induced drop in business, the Walt Disney Company furloughed 100,000 workers in April 2020. However, the company still plans to pay a $1.5 billion dividend in July. Asked whether there was an alternative to furloughing employees, a Disney spokesperson told the Financial Times: "I suggest you look up the definitions of 'publicly traded company' and 'fiduciary duty'."
i.Explain why, in theory, enterprise value and shareholder wealth should not change regardless of the firm's payout policy.
ii.Explain why Disney's decision may reduce enterprise value and shareholder wealth.
iii.Explain why some payouts (at companies other than Disney) may increase shareholder wealth and benefit the economy.
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